Benner on Tech: Facebook and App Ads

Venture capitalist Bill Gurley has been careful to say that the inflation that you feel in the tech ecosystem – the sky-high real estate prices, the fast-growing salaries, the $3.50 slices of toast – isn’t due to a tech bubble, per se. It’s really the result of a risk bubble.

What’s the material difference? When Gurley says that the so-called risk bubble is dependent on things like low interest rates, excess liquidity and investors who are willing to overpay, it’s sort of hard to say.

But the difference might be moot if Gurley is right about what happens if there's a bubble and it pops. He argued during a South by Southwest interview over the weekend that spendthrift, money-losing private companies will shutter -- and that will hurt the real estate market and other companies that relied on those startups for a lot of their revenue.

This all sounds very dot-com bust 1.0, when the property market sank and publishing companies that sold ads to tech companies got creamed (most notably "The Industry Standard"). This time around, the publishers are Internet companies. Gurley singled out Facebook, the leader in sales of app install ads, as a company that could feel some pain.

Gurley’s statement sparked a long Twitter debate because Facebook doesn’t break out the app install portion of its mobile ad revenue, and mobile ads represented 69 percent of Facebook's total revenue at the end of 2014.

The bear case for Facebook goes something like this: Back in 2013, before the company’s mobile strategy had really taken off, a Facebook advertising blog estimated that app install ads made up about 30 percent of the company’s mobile revenues. Even if that percentage hasn’t grown (doubtful given how much that particular ad category has grown) it would certainly hurt Facebook and upset investors if the app economy collapsed.

The contrarian's case is best articulated by Ben Thompson, who argues that Gurley is dead wrong. (You have to subscribe to Stratechery to read the whole post.) He writes:

First off, as I've argued repeatedly, I think the bull case for Facebook is less about app install ads (another form of direct marketing) and more about brand advertising, particularly with their video ad units. It's not just that Facebook is diversifying away from app install ads, but that they're diversifying into a massively larger market (everything I wrote about Snapchat and the impending advertising shift from TV applies even moreso to Facebook).

The bottom line: I hope Facebook can make the shift to video and do battle for a slice of the TV ad market before the app economy sputters.

Related: Bill Gurley is skeptical of driverless cars. His best quote from the conference: "I do think you'll see some dead unicorns this year."

Ventureland

Ellen Pao v. Kleiner Perkins: Kleiner will lay out its defense to the jury this week. The firm intends to call 17 witnesses (so many that the judge repeated the number in surprise), including partners Randy Komisar (who gave a controversial gift -- a Leonard Cohen book -- to Pao), Matt Murphy, Mary Meeker, Juliet de Baubigny and Beth Seidenberg.

Reddit has long housed lots of unsavory forums behind its LOL-filled façade, and the Guardian wonders whether current CEO Ellen Pao can, or should, try to clean it up.

Obvious Ventures, the venture capital firm founded by Ev Williams, raised nearly $77.7 million for Obvious Ventures I, its first fund.

People and Personnel Moves

Emily White has left Snapchat, where she was COO, so that Evan Spiegel can be a more hands-on CEO, Re/code reports.

Massachusetts Rep. Katherine Clark, who took oncyberstalking and online harassment in the wake of Gamergate, talked to TechCrunch about why ending harassment is so important and her efforts to bring the issue before Congress.

Companies

Google’s YouTube is celebrating a 10th birthday, and to mark the occasion Variety explored all of the ways that competitors are chipping away at its business. The report also notes that YouTube might launch a subscription video service.

Security Watch

The government is closing in on the JP Morgan hackers and The New York Times says it will file a criminal case against them in the next few months.

There’s a surveillance tool so secretive that police departments have to sign a nondisclosure agreement before they can even buy it, says the Times.

Former GigaOm research analyst Michael Wolf wrote about how an abundance of VC funding and a resulting bloated cost structure brought the company down.

News and Notes

IDC says that PC shipments will fall by nearly 5 percent in 2015 to 293.1 million units. Wired notes that at this rate Apple could sale more iPhones this year than the entire PC market.

Computers are a powerful weapon in Afghanistan, according to the Daily Dot.

Techies -- many of whom you’ve never heard of -- are requiring construction workers to sign “domestic nondisclosure agreements,” a document once popular primarily with celebrities, reports The New York Times.

China may not be able to build a strong Internet economy and keep its strict censorship rules in place, argues the Financial Times.

You’re missing out on SXSW right now! Business Insider recaps the best parties so you can see, but not experience, the fun.

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